29 April 2008

The power of compounding

Let’s go back to our financial mgmt class and refresh the formula for calculating our future value of money…..

FV = PV (1+k) to the power of n

Eg: How much your RM1000 will worth in 2 years with rate of return of 4.5%?
FV = 1000 (1+0.045) to the power of 2
= RM1092.03

If we take the average rate of return for unit trust fund, for instance 10%, let’s see how much you’ll be getting….
FV = 1000 (1+0.10) to the power of 2
= RM1210

See the power of compounding? Shocking but true :)

Most of the financial gurus place emphasis on instilling discipline when it comes to savings and investment. Hence do not make excuse to yourself by saying…. “i cannot invest now because I do not have enough money”….or “I think I need to wait until my income reaches xxx before I can start saving and investing”.

Always remember the Malay phrase, “sikit-sikit lama-lama jadi bukit”.
If you can’t afford to invest RM1000, you may start small by putting aside RM100 per month. After all, what matters is to start early than never. And the good thing about unit trust, you’ll have the opportunity to invest in big and well-diversified stocks portfolios instead of just dumping your big money in one big stock, and experience the risk of losing during market downfall.

(* I've been given the greenlight to attend the "Save ur Future II: Financial Planning training" by my dearest bos :) So kengkawan...see u all there!)

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